India’s financial reporting season never fails to remind us of the fragile state of the country’s state-owned oil marketing companies whose profits swing wildly from quarter to quarter. Those moves are not for any fundamental reason, but because they may or may not have been reimbursed by the government for losses incurred from selling diesel, LPG and kerosene at below market prices.
But these companies — Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. Ltd. — are usually fully compensated by the end of the financial year, which runs from April to March in India.
Until they get compensated, they rely on market borrowings to fund their operating expenses and the longer the non-payment period, the higher their interest costs on these borrowings. But the bottom line is that they get compensated.